Asked by Christin Evans on Jun 07, 2024
Verified
In the simple rate of return method, depreciation expense is excluded from the calculation of incremental expenses.
Simple Rate of Return
A financial metric calculating the increase in cash flow an investment generates, compared to its initial cost, not accounting for time value of money.
Depreciation Expense
The charged amount representing the usage of fixed assets attributed to business operations over a period.
Incremental Expenses
Incremental expenses are the additional costs incurred when a company increases its production or activities beyond its current levels.
- Learn the rudimentary principles of capital budgeting and the range of methodologies applied for the evaluation of investment projects.
- Learn about the simple rate of return method and how it is applied.
Verified Answer
JL
JANNO LAMPKINJun 08, 2024
Final Answer :
False
Explanation :
In the simple rate of return method, depreciation expense is included in the calculation of incremental expenses, as it is used to estimate the annual incremental net operating income by subtracting expenses, including depreciation, from the annual incremental revenues.
Learning Objectives
- Learn the rudimentary principles of capital budgeting and the range of methodologies applied for the evaluation of investment projects.
- Learn about the simple rate of return method and how it is applied.